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[video] JPMorgan Pays $2.6 Billion for Role in Madoff Scandal (Update 1)

Updated from 10:34 a.m. ET with comments from U.S. Attorney for the Southern District of New York Preet Bharara's afternoon press conference and JPM's additional settlements with the Office of the Comptroller of the Currency and Irving Picard, the court-appointed trustee seeking to resolve the claims of the victims of Bernard Madoff's Ponzi scheme.  Also updated to include JPMorgan's estimate of a reduction in fourth-quarter earnings.

NEW YORK (TheStreet) -- The main banking subsidiary of JPMorgan Chase (JPM - Get Report) entered into a deferred prosecution agreement with the U.S. Attorney for the Southern District of New York over its role in the Bernard Madoff Ponzi scheme, which led to an estimated $18 billion in losses to investors.

The company's main subsidiary,  JPMorgan Chase Bank, NA, consented to a two-count criminal nformation, through which the Justice Department charged the bank with "failure to maintain an effective anti-money laundering program... and failure to file a suspicious activity report."

JPMorgan agreed to pay $1.7 billion to the federal government as part of the agreement.  According to the court filing, the bank agreed "that it will not file a claim with the Court or otherwise contest civil forfeiture."

JPMorgan Chase Bank, NA also agreed to pay $350 million to the Office of the Comptroller of the Currency, its primary regulator, and also settled private lawsuits for $524 million, including a suit by Irving Picard, the court-appointed trustee seeking to resolve the claims of the victims of Madoff's Ponzi scheme.

The bank also agreed to fully cooperate in any criminal investigation of the Madoff affair and to continue improving its Bank Secrecy Act (BSA) and anti-money laundering (AML) compliance programs.

The deferred prosecution agreement will last for two years.

U.S. Attorney for the Southern District of New York Preet Bharara is expected to hold a press conference on the agreement at 1:15 p.m. ET.

Here's JPMorgan's full statement released Tuesday morning:

We recognize we could have done a better job pulling together various pieces of information and concerns about Madoff from different parts of the bank over time.  We filed a Suspicious Activity Reports (SAR) in the U.K. in late October 2008, but not in the U.S.

We do not believe that any JPMorgan Chase employee knowingly assisted Madoff's Ponzi scheme.

Madoff's scheme was an unprecedented and widespread fraud that deceived thousands, including us, and caused many people to suffer substantial losses.

The Firm is making significant efforts to strengthen our BSA- AML-KYC practices across the board to be best-in-class. We believe the lessons we have learned will make us a stronger company.

Previous media reports had said JPMorgan Chase was set to pay over $2 billion as part of its settlements of its role in the Madoff fraud, including payments to the Office of the Comptroller of the Currency and the Financial Crimes Enforcement Network, which haven't yet been announced.

Madoff in 2009 was sentenced to 150 years in prison.

After surprising investors with a third-quarter net loss, driven by $9.15 billion in provisions for litigation reserves, JPMorgan during the fourth quarter entered into $17.5 billion in mortgage-related settlements with the Justice Department, other government authorities and institutional investors.  It was a "kitchen-sink" fourth quarter, and JPMorgan CEO James Dimon said during a presentation on Dec. 11 mentioned Madoff while discussing the company's decision to make so many settlements, rather than fight, according to a transcript provided by Thomson Reuters.

If a big bank chooses a legal fight against the Justice Department and regulators, "You will be in court for two, three, four or five years. Your people will be interviewed, your company will be demeaned in the press nonstop," Dimon said.  "So you may have paid a premium to settle," he added.

Dimon went on to say that JPMorgan's residential mortgage-backed securities settlement "was a far better thing to do. It's very hard to go to court in some of these matters if you are a banker. And I don't want to threaten the health of my Company ever."

During an afternoon press conference on Tuesday, U.S. Attorney Preet Bharara said "the bank connected the dots when it came to its own profits, but was not so diligent about its legal obligations."  Bharara also said JPMorgan's settlement was the largest ever forfeiture from a bank.

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